Late last week, the U.S. Department of Labor (“DOL”) announced that it plans to rescind the Trump DOL rule that tightened the standards by which two or more companies could be deemed a joint employer for purposes of the Fair Labor Standards Act (“FLSA”). The same day, the DOL announced its plans to withdraw the Trump DOL rule that loosened the standards by which an individual could be deemed an independent contractor rather than an employee under the FLSA. (The joint employment rule is being “rescinded” because it actually went into effect on March 16, 2020, at least in part; the independent contractor rule is being “withdrawn” because the DOL is taking action before its effective date.)
Neither move is unexpected, because as we wrote about here and here the Biden DOL had signaled several times that it intended to revisit numerous policy decisions by its predecessors. In addition, the joint employment rule never fully went into effect because of a federal court order striking the rule’s provisions regarding “vertical joint employment,” which refers to the scenario in which an employee is hired through a staffing agency but assigned to perform services on behalf of a different organization. The order was the result of a lawsuit filed against the Trump DOL by 17 states and the District of Columbia that challenged the merits of the rule.
Technically speaking, the DOL’s announcements are “proposals” to rescind and withdraw the joint employment and independent contractor rules, respectively, and interested parties can submit comments to the DOL about either rule by April 12, 2021. However, there is little chance that the rules will continue in their present form.
One interesting question is what the DOL plans to do to address these topics once the current rules are out of the picture. Neither the FLSA itself nor any other DOL regulations define “joint employer” or “independent contractor” in any meaningful detail. For decades, courts and enforcement agencies have had to rely on a hodgepodge of case law and regulatory guidance to decide threshold issues like whether two or more employers could be liable for a minimum wage or overtime violation under the FLSA, or if an individual was an employee rather than an independent contractor and therefore entitled to the FLSA’s protections. Whatever their substantive virtues, the Trump DOL’s rules at least clarified what standards apply to resolve these questions. Unless the Biden DOL replaces the to-be-rescinded/withdrawn rules with new ones, the status quo will return to this state of uncertainty.